Stubborn sellers meet playful buyers

Stubborn home sellers are said to dominate in the residential market with some still refusing to adjust their asking price in line with the market.

Lanice Steward, managing director of Anne Porter Knight Frank (APKF), the Cape Peninsula estate agency says just because there are occasional signs of an eventual recovery in the South Africa residential market home sellers should not think that higher prices are once again possible.

She says although they always try to achieve the highest price for their sellers, sellers tend to think estate agents can achieve the impossible.

“It is still a buyers’ market and those not prepared to price realistically should not put their homes up for sale,” she says.

Steward notes that according to the recent FNB Property Barometer report, 87 percent of homes sold in the second quarter of 2011 did not achieve their asking prices.

Often, she says because the prices were set by the seller at a level higher than the agents would have recommended.

In real terms since the price peak of February 2008, the report indicates that South African house prices have fallen by 15.3 percent.

She reckons this is not excessive considering that since July 2000 they have risen 64.7 percent (in real terms) and 313 percent in cash value.

“Sellers hanging on for former peak prices are quite simply living in an unreal world.”

As there are as yet no obvious signs of a significant growth in South Africa’s economy, house prices which traditionally respond to growth, are likely to remain static, she says.

A further cut in the interest rate will help in the foreseeable future and serious sellers will have to accept a few more downward price adjustments.

“If people think that this is poor advice, they should take note how many overpriced homes stick on the market and do not sell until they have reduced their prices.”

To illustrate the unrealistic asking prices by sellers, she says a Hout Bay property came onto the market at R11 million. It finally sold 24 months later at under R7.5 million.

Another listed at R2.985 million and was sold after a five month wait for R2.3 million while one at R4.8 million was sold a year later at R3.5 million – a 24 percent price drop.

Steward explains that the sellers lost considerable interest on money they could have collected earlier if they had priced correctly.

Many buyers detect overpricing early on and do not bother checking out too-high priced homes.

Meanwhile, Anton du Plessis, chief executive officer of Vineyard Estates says over the last decade, to estimate the value of properties on sale, estate agents generally added the accepted annual increases to the actual price paid and the value of any improvements made.

With this system it was assumed that a home sold at R2 million in 2004 would by 2011 be worth at least R3.5 million or more if improvements had been carried out, he explains.

But now things have changed and these assumptions are no longer valid. In the upper middle and upper brackets, prices are still declining, albeit no longer drastically, says Du Plessis.

“So much has been talked about regarding correct pricing and one would have expected the majority of home sellers to have accepted this reality.”

Du Plessis says there are two types of sellers, those who have to sell and those who are prepared to do so only if they can achieve a price already fixed in their minds.

Sellers in the second category have a tendency to go into denial. They firmly believe that the longer the house sticks on the market, the harder they find it to admit that they have made a mistake.

As an example, he says there is a property in an upmarket area which has been on the market and actively advertised since 2009.

The reason is that the seller is asking for far more than they can actually get and to date, the seller has dropped the price by R500 000 from the original asking price.

What sellers should not do is base their price on what the neighbour or others in the area are asking for their homes because as indicated, many buyers today are not really serious and still pricing is unrealistic, says Anton du Plessis.

When this happens, he says the estate agent ends up being thought incompetent.

If and when the owner finally agrees to a sale, the property is sold below the price that the agent might have achieved had the agent been allowed to price according to current market values at the outset.

Homeowners who bought toward the end of the last upward surge from mid-2007 may have to accept that if they sell now they will probably not recover their purchase price or the extra costs involved in a sale including the 5 percent commission to the agent, he says.

Du Plessis says the market is so bad that estate agents are forced to accept a lower commission in line with the lower-than-expected price achieved by the seller.

Agents are likely to spend more on advertising as the home will be on the market much longer.

He says sellers should look carefully at the sales data for the previous quarter, more especially the figures of homes in their area and estate agents should be able supply the seller with these sales figures.

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What I have to say is that Estate Agents still get a fat commission no matter what the seller has to drop the house prices too. I firmly believe that the whole fiasco with house prices has been capitalised on by ruthless estate agents who do not care one iota for the seller only about the “bucks” they earn. They love selling houses at half their value because of course they will get a quick commission. Who does not want to buy a house at half its value? Remember dear agents it is people’s lives you are playing with. Their retirement funds being put into a house only having to lose half of it now. Agents do not even try to get a reasonable price for the seller ... they do not care. Cheap houses at seriously under their value = quick commission. - Suzuette